Taxing holidays doesn't fly

For millions in Britain, the weather in August, such as it is, presents the opportunity to jet away and put the office behind them for a couple of weeks. But in recent years, the penalties for leaving the UK have grown ever more costly.

Our annual report on holiday taxes levied on Britons shows that each holidaymaker will pay on average £69 in tax for their trip; the Treasury will bag £3.1 billion overall. A family of four going away to Spain will pay £158 in Air Passenger Duty (APD), VAT on pre-holiday shopping and the Holiday Insurance Premium Tax. For a trip to Florida, that rises to £282. Whilst successive governments try and justify the continuation of these taxes, it is clear that their continuation is increasingly tenuous.

APD, in particular, is often presented as a fair way of accounting for the externalities from flying: transferring the environmental cost of air travel to the traveller, rather than those affected by pollution. But this argument doesn’t fly. As Kristian Niemitz points out, if APD was truly a green tax, it would make sense to levy it on what emissions are most closely correlated to: the fuel that planes use. Instead, holidaymakers face drains on their post-tax income on poorly considered policies. Indeed, APD’s introduction in 1994 made no mention of an environmental argument.

Aircraft today are considerably more effective in terms of fuel use, noise levels and the distance they can take passengers. The inflexible nature of the holiday taxes highlighted in our report demonstrates that they are not capable of reflecting changes in technology.

The TaxPayers’ Alliance has long called for the scrapping of APD, especially since it generates only a modest amount for the Treasury. Rather than punishing air travellers and, by extension, the aviation industry, the government should also consider further reductions in the rate of corporation tax and push ahead with airport expansion, delivering cheaper seats for more passengers.